TVM Questions I

TIME VALUE OF MONEY - PART 1
1) Calculate the future value of Rs 200 after 5 years at
a) 10% simple interest
b) 10% compound interest
2) If Mr X invests in a saving bank account Rs 1000 at 10 per cent interest compounded

annually. Find the future value after 3 years.
3) If you deposited Rs 55,650 in a bank, which is paying 15% interest on a 10-year time
deposit, how much would the deposit grow at the end of 10 years
4) A company’s sales in 2021 is Rs 200 crores. If sales grow at 7%, what will be the
sales 10 years later in 2031?
5) How much would Rs 100, growing at 5% per year, be worth after 100 years? What
would be the FV if the growth rate was 10%?
6) Find the Present Value:
a) Mr Nero wants to find the present value of Rs 2,000 to be received 5 years from
now, assuming 10 per cent rate of interest.
b) Consider that an investor has an opportunity of receiving Rs 1000, Rs 1500, Rs

800, Rs 1100 and Rs 400 respectively at the end of each year over next 5 years.
Find the present value of this stream of uneven cash flows. The interest rate is 8
%.
7) What is the Present value of a security that will pay Rs 5000 on 20 years if securities
of equal risk pay 7% annually?
8) Your parents will retire in 18 years. They currently have 250,000 saved, and they
think they will need 10,00,000 at retirement. What annual interest rate must they
earn to reach their goal, assuming they don’t save any additional funds?
9) Mr X deposits Rs 2,000 at the end of every year for 5 years in his saving account
paying 5 per cent interest compounded annually. He wants to determine how much
sum of money he will have at the end of the 5th year.
10)What's the future value of a 7%, 5-year ordinary annuity that pays $300 each year?
If this was an annuity due, what would its future value be?
11)Find the future values of these ordinary annuities. Com- pounding occurs once a
year.
a. $400 per year for 10 years at 10%
b. $200 per year for 5 years at 5%
c. $400 per year for 5 years at 0%
d. Rework parts a, b, and c assuming they are annuities due.
12)Find the present values of these ordinary annuities. Discounting occurs once a year.
a. $400 per year for 10 years at 10%
b. $200 per year for 5 years at 5%
c. $400 per year for 5 years at 0%
d. Rework parts a, b, and c assuming they are annuities due.
13)What's the present value of a perpetuity that pays 1,000 per year beginning 1 year
from now, if the appropriate interest rate is 5%? What would the value be if
payments on the annuity began immediately?
14)Determine the present value of a perpetuity of Rs 1,20,000 per year for infinite
period at a rate of 12% p.a
15)Mr James takes a loan of Rs 1 lakh at 14% interest rate for purchasing a car. The loan
is to be repaid over the next 5 years. Estimate the annual instalment to be given by
Mr James to repay his principal plus interest in 5 year. Also give the amortisation
schedule.
16)Suppose you borrowed 30,000 on a student loan at a rate of 8% and must repay it in
three equal instalments at the end of each of the next 3 years. How large would your
payments be; how much of the first payment would represent interest; how much
would be principal; and what would your ending balance be after the first year?
17)Company XYZ is establishing a sinking fund to retire Rs 5,00,000 8% debentures 10

years from today. The company plans to put a fixed amount into the fund each year
for 10 years. The first payment will be made at the end of the current year. The
company anticipates that the funds will earn 6% a year. What equal annual
contributions must be made to accumulate Rs 5,00,000, 10 years from now.
18)Two financing options are available to a borrower
a) Loan @ 21% compounded on quarterly basis
b) Loan @22.5% compounded on annual basis
Which of the two options is better for the borrower?
19)Bank A pays 4% interest compounded annually on deposits, while Bank B pays 3.5%
compounded daily.
a. Based on the EAR (or EFF%), which bank should you use?
b. Could your choice of banks be influenced by the fact that you might want to
withdraw your funds during the year as opposed to at the end of the year?
Assume that your Funds must be left on deposit during an entire compounding
period in order to receive any interest.
20)You have won the Florida lottery. To receive your winnings, you must select one of
the two following choices:
a. You can receive $1,000,000 a year at the end of each of the next 30 years;
b. You can receive a one-time payment of $15,000,000 today.
Assume that the current interest rate is 6%. Which option is most valuable?
21)An executive is about to retire at the age of 60. His employer has offered him two
post –retirement options:
a. Rs 20,00,000 lump sum,
b. Rs 2,50,000 for 10 years. Assume 10% interest,
Which is a better option.
22)Mr Nerav has borrowed Rs 30,00,000 from Fino Home Finance Ltd. to finance the
purchase of a house for 15 years. The rate of interest on such loans is 24% per
annum. Compute the amount of annual payment/ instalment.
23)If you deposit money today in an account that pays 6.5% annual interest, how long
will it take to double your money?
24)An investment will pay $100 at the end of each of the next 3 years, $200 at the end of
Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments
of equal risk earn 8% annually, what is its present value? Its future value?
25)What is the present value of a $100 perpetuity if the interest rate is 7%? If interest
rates doubled to 14%, what would its present value be?

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TIME VALUE OF MONEY - PART 1

1) Calculate the future value of Rs 200 after 5 years at

a) 10% simple interest

b) 10% compound interest

2) If Mr X invests in a saving bank account Rs 1000 at 10 per cent interest compounded

6) Find the Present Value:

b) Consider that an investor has an opportunity of receiving Rs 1000, Rs 1500, Rs

a. $400 per year for 10 years at 10%

b. $200 per year for 5 years at 5%

c. $400 per year for 5 years at 0%

d. Rework parts a, b, and c assuming they are annuities due.

a. $400 per year for 10 years at 10%

b. $200 per year for 5 years at 5%

c. $400 per year for 5 years at 0%

d. Rework parts a, b, and c assuming they are annuities due.

17)Company XYZ is establishing a sinking fund to retire Rs 5,00,000 8% debentures 10

18)Two financing options are available to a borrower

a) Loan @ 21% compounded on quarterly basis

b) Loan @22.5% compounded on annual basis

Which of the two options is better for the borrower?

b. You can receive a one-time payment of $15,000,000 today.

a. Rs 20,00,000 lump sum,

b. Rs 2,50,000 for 10 years. Assume 10% interest,

Which is a better option.

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